An international comparative study of the value-added tax implications of change in use adjustments by residential property developments

Abstract

Residential property developers face an ever-increasing problem of disposing of their newly built residential premises. The problem exists because of an oversupply of residential property and a decrease in property sales over the past few years. The VAT consequences of such a change in use of a property could have catastrophic implications for the property developer in terms of cashflow. In the 2010 budget speech, the Minister of Finance of South Africa acknowledged that harsh VAT legislation exists. The aim of this study is to determine a way of amending South African VAT legislation to accommodate property developers during the period when residential properties are temporarily let out. It was concluded that South Africa’s current VAT legislation with regard to change in use of residential properties is far worse than that of New Zealand and Australia, but that the proposed amendments will offer some degree of relief. The situation, even after implementing the amendments to legislation, will still not give sufficient relief and another solution is put forward for consideration.

Residensiële eiendomsontwikkelaars staar toenemende probleme met die verkoop van hulle nuutgeboude residensiële eiendomme in die gesig. Die probleem het ontstaan weens die toenemende beskikbaarheid van residensiële eiendomme in die mark, sowel as die afname in die eiendomsmark die afgelope paar jaar. Die BTW-gevolge van sodanige verandering in gebruik van ʼn eiendom mag katastrofiese gevolge vir die eiendomsontwikkelaar inhou wat betref kontantvloei. In die 2010-begrotingsrede het die Minister van Finansies van Suid-Afrika erken dat problematiese BTW wetgewing bestaan. Die doel van hierdie studie in om te bepaal in watter mate die Suid-Afrikaanse BTW-wetgewing verander kan word ten einde eiendomsontwikkelaars te akkommodeer gedurende die periode waarin hulle eiendomme tydelik uitverhuur word. Daar is gevolglik vasgestel dat Suid-Afrika se BTW-wetgewing met betrekking tot die verandering in gebruik deur eiendomsontwikkelaars erger is as die wetgewing in Nieu-Seeland en Australië, maar dat die voorgestelde wetswysigings ietwat van ʼn verligting sal bied. Die situasie, selfs ná die implementering van die wetswysigings, sal steeds nie voldoende verligting bied nie en ʼn ander oplossing word voorgestel.